Who really wants to be a millionaire: estimates of risk aversion from game show data
Hartley, Roger, 1946-, Lanot, Gauthier and Walker, Ian, 1954- (2005) Who really wants to be a millionaire: estimates of risk aversion from game show data. Working Paper. Coventry: University of Warwick, Department of Economics. Warwick economic research papers (No.719).
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There is a considerable variation in estimates of the degree of risk aversion in the literature. This paper analyses the behaviour of contestants in one of the most popular TV gameshows ever to estimate a CRRA model of behaviour. This gameshow has a number of features that makes it well suited for our analysis: the format is extremely straightforward, it involves no strategic decision-making, we have a large number of observations, and the prizes are cash and paid immediately, and cover a large range - up to £1 million. Our data sources have the virtue that we are able to check the representativeness of the gameshow participants. While the game requires skill, which complicates our analysis, the structure of the game is very simple so that complex probability calculations are not required of the participants.
The CRRA model is complex despite its restrictiveness because of the sequential nature of this game - answering a question correctly opens the option to hear the next question and this has a value that depends on the stage of the game and the player's view about the difficulty of subsequent questions.
We use the data to estimate the degree of risk aversion and how it varies across individuals. We investigate a number of departures from this simple model including allowing the RRA parameter to vary by gender and age. Even though the model is extremely restrictive, in particular, it features a single RRA parameter we find that it fits the data across a wide range of wealth remarkably well and yields very plausible parameter values.
|Item Type:||Working or Discussion Paper (Working Paper)|
|Subjects:||H Social Sciences > HB Economic Theory
H Social Sciences > HD Industries. Land use. Labor > HD61 Risk Management
|Divisions:||Faculty of Social Sciences > Economics|
|Library of Congress Subject Headings (LCSH):||Who wants to be a millionaire, Game theory, Risk assessment, Choice (Psychology), Rational choice theory|
|Series Name:||Warwick economic research papers|
|Publisher:||University of Warwick, Department of Economics|
|Place of Publication:||Coventry|
|Official Date:||31 January 2005|
|Number of Pages:||47|
|Status:||Not Peer Reviewed|
|Access rights to Published version:||Open Access|
|Funder:||Economic and Social Research Council (Great Britain) (ESRC)|
|Grant number:||R000239740 (ESRC)|
Adda, J. and R. Cooper (2003), Dynamic Economics, MIT Press: Cambridge, Mass.
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